How to build your healthcare economic story

market driven innovation Feb 09, 2022
healthcare economics medtech

Whether you are an established OEM or a medtech startup, clearly understanding and articulating your healthcare economic story is a vital part of your go-to-market strategy. With healthcare spending at stratospheric levels, the expectation of payers and providers is that healthcare costs will be reduced, while the quality of care is maintained or improved.

Your healthcare economic story is about the value you are providing to the healthcare system.

First, let’s breakdown the definition of value as it relates to healthcare. Often, people refer to value purely in monetary terms – something less expensive is commonly labeled “higher value.” However, this definition misses the quality component. Value is the ratio of quality over cost.

Offering a product that is the same quality (in comparison to the competition) at a lower cost provides greater value to the customer. Conversely, offering a product that delivers higher quality at the same cost also increases value to the customer.

Value, in terms of new solutions to the healthcare system, may be measured through the following:

Healthcare Value = Quality of Care / Cost of Care

Sometimes, innovators focus solely on the denominator – economic outcomes. Examples can be found in many digital health and medtech applications that are focused on improving operational efficiencies, optimizing inventory, and providing cheaper products.
Alternatively, most successful innovators apply focus to both the numerator and the denominator in this healthcare value equation. They aim to improve the quality of care that matters to patients and providers, and they also aim to reduce the related costs of care.

This can be challenging, however, because the new medical technologies that afford better outcomes are often more sophisticated and costly than the predicate solutions utilized in the standard of care. How can the economic outcomes be improved when the costs of new solutions may be higher?

Before we go there, let’s first talk about positive and negative clinical outcomes.

A positive clinical outcome increases the quantity of desired results. For instance, positive clinical outcomes may be measured by increased blood oxygenation level, improved pain management score, and increased survival rate. Obviously, positive clinical outcomes are vital, and their importance is not intended to be diminished here.

Alternatively, negative health outcomes occur when a medical procedure provides an undesired result. There are cases wherein a patient is unaffected (positive or negative) from a medical procedure. More often though, a procedure that results in an undesired outcome requires additional medical care to treat. For instance, a surgical procedure may result in a high rate of infection that a lengthens hospital stay. Another example, patient nonadherence to at-home patient therapy may result ER visits due to disease exacerbation.

Your healthcare economic story is typically about the negative health outcomes and the additional care that is required to address these outcomes.

Building your healthcare economic story starts by defining the appropriate negative health outcome that can be tracked. When exploring potential outcomes, you will want to consider the incidence rate of the outcomes. Often, targeting a smaller, more vulnerable patient population will result in a higher incidence rate that you will be able to realistically affect. (More on that topic here – Why your smallest viable market is what matters in medtech.)

Once you have identified the right negative health outcome and the associated incidence rate, the next step is to quantify the economic costs associated with that negative health outcome.

For instance, this could be the average cost per patient of hospital readmissions due to disease exacerbation. Another example could be the per patient costs for secondary surgical procedures to correct issues generated from the initial procedures. It is best to define these healthcare costs on a per person or per procedure basis rather than an aggregated amount. This granularity will help clarify your healthcare economic story.

(Sidenote - In addition to quantifying the economic costs, it is important for you to understand the stakeholder that currently absorbs these costs. These economically penalized stakeholder groups may be the most motivated to adopt new solutions that reduce these healthcare costs. These insights may help inform the appropriate payer and business models.)

The last piece of your healthcare economic story is determining the population size that is subject to the standard of care. Sometimes, this is a difficult figure to quantify – often, it needs to be estimated. The best place to search for data related to populations, clinical outcomes, incidence rates, and economic costs are peer-reviewed medical journals.

Sometimes, however, the exact data sought may be unavailable, and you may need to take a bottom-up approach. In this case, understanding the populations and procedures that relate to one institution or medical center is then extrapolated to a national level. This bottom-up approach is a far less accurate one, but it may provide ballpark figures to complete your initial healthcare economic analysis. Whatever the method used, be sure to disclose the sources and assumptions that were used in the analysis.

Once you have the population size, the incidence rate of the negative health outcome, and the per person/procedure costs associated with the negative health outcome, you can quantify the total related healthcare costs. It is simply the multiple of these three factors. This figure is the aggregated cost that the healthcare system is currently absorbing in relation to the negative health outcome you have defined.

As you are developing your medical device, you should understand the change in outcome that you aim to provide with your solution. This may be your clinical endpoint – a separate topic that was covered in this post (Why the endpoint should be your starting point in medtech).

Once you determine this endpoint, you can infer the percentage of healthcare economic cost that will be saved through your innovation. This figure can then be the basis for determining your monetization strategy, fundraising, reimbursement strategy, pricing, and more. Of course, clinical studies are likely to be required to prove this endpoint before monetization becomes viable. Nonetheless, a sound economic model is the starting point for this process.

Back the original question in this post – how can the economic costs be reduced when the medical innovation that delivers a superior outcome is more costly than the standard of care?

While a sophisticated medtech solution may be more expensive than the currently reimbursed standard of care, the healthcare economic savings that can be realized from this new solution may be a significant multiple of the incremental product costs. This effectively translates into a return on investment (ROI) analysis for the payer. The long-term savings to the payer will far exceed the up-front costs of your innovation. Whether the end customer is public/private insurance, hospitals, clinicians, patients, or others, do the math for them.

Create the economic story that resonates and be sure that your innovation will be capable of delivering on it.


Seeking support in developing your healthcare economic story? We can help.  Contact us for a free consultation to get the process started.


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